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BusinessDecember 11, 2023

Beyond Xero: Is Wellington ready to take on the fintech world?


Seventeen years after Xero launched in a one-bedroom apartment on Willis St, the next generation of Wellington financial startups is ready to go big. Will the capital take advantage? 

In 2006, Rod Drury and Hamish Edwards started a little company in a one-bedroom apartment on Willis St with the janky name Accounting 2.0. The rest is New Zealand tech history – it changed its name to Xero, became New Zealand’s first unicorn, and took over the world. Xero now has more than 5,000 staff and a market cap of $15b. 

A generation later, Xero is still headquartered in Wellington with 600-odd staff. The flow-on effects have been massive. A lot of people got rich off the company’s stock and invested it across the city, and many more got really good jobs out of it. As those people moved on, they started new companies or brought their experience to senior roles elsewhere. 

Xero, along with TradeMe, paved the way at a time when Wellington’s tech scene barely existed. The city boasts a series of successful finance startups, including Sharesies, Hnry, PaySauce, CoGo and Sharesight, to name a few.

Fintech (financial technology) is the largest tech sector in New Zealand, with $2.76b in annual revenue, according to the annual Technology Investment Network report. It’s an incredible growth story; the sector barely registered on the same report in 2010, with a mere $120m in revenue. 

Xero founder Rod Drury in 2015 (Photo by Hagen Hopkins/Getty Images)

Auckland is by far the largest centre for tech, but fintech is a rare niche where the centre of gravity is in the capital. Wellington is uniquely positioned to become a major player in fintech. But is the city doing enough to take advantage of its potential? 

As the capital city, Wellington is New Zealand’s administrative centre, with tens of thousands of educated, white-collar workers across government, legal and accounting services, which makes it a natural birthplace for a company like Xero. 

Jason Roberts, the executive director of industry group Fintech NZ, points to New Zealand’s early adoption of open banking and Eftpos systems as another factor for Wellington’s strength in fintech. “We were really innovative in the 1980s. Part of that was due to the intimacy of Wellington, connecting the technology and the people. We managed to do Eftpos early. We were the first country in the world with internet banking. We did lots of stuff early,” he says. 

While many larger international companies have focused on providing tech solutions to major banks, New Zealand’s fintech scene has carved itself a nice little niche by focusing on individuals and small businesses. “That is our sweet spot. We can build the right size and the right fit for here in New Zealand, and then scale it, so when it goes to other marketplaces it does extremely well.”

Another area New Zealand has excelled in is design, making finance seem friendlier and more accessible.  Roberts points to Sharesies and Hatch as notable examples. “They have a really nice user experience. They’ve broken into areas that traditional banks and wealth providers haven’t gone or didn’t go or didn’t know how to go. It takes a particular kind of innovation and leadership to do that, and I think Wellington has always had that,” he says. 

The Sharesies interface (Image: Sharesies)

“There is such a strong little community in Wellington that sparks off each other well. And I’m not saying Auckland doesn’t do that, because they do. But there’s a secret sauce that Wellington has that other towns don’t have.”

One of Wellington’s more recent fintech success stories is Hnry, a tax software for sole traders. Husband and wife duo James and Claire Fuller started the company in 2017 based on some spreadsheets they had developed for themselves while working as contractors. Six years later, Hnry has raised $60m in venture capital, hired over 100 staff and is expanding aggressively into international markets.

James Fuller credits a lot of its success to the companies that paved the way in Wellington. “You can’t overlook the effect that Xero and the TradeMe had,” he says. “They built up these huge workforces and then over a period of time the workforce moved on to create their own businesses or become parts of other businesses.

“We benefited very much from that close ecosystem that we have in Wellington. It is a bit of a village and people joke about ‘Silicon Welly’, but there is something here that is revered in other places. The pedigree is incredibly high.”

Cam MacLachlan, who co-founded the newly-launched startup Goldie, a platform for retail investors to buy shares of gold and other precious metals, said his company benefitted from the Wellington scene. A partnership with Sharesight was a huge early win.

“There is a feeling here. You walk past Xero, you walk past TradeMe. You could throw a stone and hit both of them. There’s an inspiring element to it.”. Goldie’s first office is the same space where TradeMe started. “We are sitting right where they were,” he says, with a sense of awe. 

However, MacLachlan admits that despite the physical proximity, he and his company feel disconnected from the local tech scene. He wants to see a more active effort to organise events and connections between companies. 

James Fuller also wants Wellington’s tech companies to find better ways to collaborate – specifically, he’d like to see the council make an active effort to create a dedicated tech quarter in the creative end of town around Courtenay Place or Cuba Street.

“We’re all sort of squeezed into these random spaces and there doesn’t feel like there’s a tech precinct at any point. There’s a very different vibe depending on where you are in the city, so if we’re gonna create something for tech, it needs to be very deliberate.”

Wellington city council’s efforts to develop the city’s tech sector are run through WellingtonNZ, the council-controlled regional economic development agency. Rebekah Cambell, WellingtonNZ’s tech lead, describes her role as identifying companies with high growth potential and helping them get to the next level, mostly through mentoring and upskilling for senior leaders.“If we can help Hnry become Xero, that will make a huge difference, arguably more than anything you can do at an early stage.”

a beige backround, someone scooting into the distance with question marks and money in the air
Are accelerators a key to success or merely a lottery? (Image: Archi Banal)

However, fintech isn’t an area that WellingtonNZ is specifically focused on. It has made more noise about alternative energy, tourism and the screen sector, but it officially is industry-agnostic when identifying the companies it will support. “We haven’t specifically focused on fintech, because it’s hard to know where your next big company will come from,” she says. 

If Wellington’s tech industry has a spiritual home, it’s Creative HQ, an “innovation hub” run by WellingtonNZ, best known for its startup accelerators. 

Creative HQ ran fintech accelerators in 2016, 2018, and 2019. They were some of the most successful programmes it has ever run, helping to develop Hnry, Sharesies, Tapi, Jrny, Banqer, AccountingPod and Choice.

Looking back on his time in the accelerator, Fuller describes it like lightning in a bottle. “We were all in the same area of Creative HQ and we had the opportunity to bond very closely with other team members. There were some lasting friendships that came out of that. Riffing off each other and feeling the vibe of what’s going on with other people’s businesses has a way of bringing people together.

“I think the fintech accelerator was interesting because, for those couple of years, it was so focused. Creative HQ did a really good job of focusing on a specific industry,” he says. “Some folks relocated to Wellington just to be part of the program because it was full of great connections to the local financial services community and mentors who had been through the likes of Xero and TradeMe.”

Creative HQ hasn’t run a fintech accelerator programme since 2019. The reason for that, according to Joe Slater, its head of startups, is simple: money. The three fintech accelerators were sponsored by Kiwibank, and Creative HQ can’t afford to run an accelerator without support. 

Despite its strong track record, Creative HQ is still on fairly shaky financial footing. It relies on corporate sponsors, government grants, council funding and selling courses in “innovation”. 

“Working with early-stage startups is tricky. It’s hard to get a financial return from it. You help them out in the short term, and it’s not until a few years later they start to hire people and create jobs. It’s a tricky model from a funding perspective because there aren’t that many organisations who want to see their societal return in five to 10 years,” Slater says. 

Accelerators don’t have a high success rate. From a cohort of a dozen teams, one or two might go on to be major growth companies, another couple could see mid-sized success, but the rest probably won’t survive the year. 

In privately run accelerators, a venture capital firm funds the programme and picks the most promising teams to invest in at the end. Creative HQ runs an investor showcase and helps teams get outside investment, meaning it takes all the cost and has no stake in the rewards. 

Should Creative HQ take a financial stake in the startups it helps to create? “Maybe,” Slater says. 

In the past four years, Creative HQ has since run accelerators with a few different themes; tourism, climate response, and government innovation. However, those decisions mostly depend on what it can get grants and sponsors for, which limits Creative HQ’s ability to make strategic decisions about where to focus its efforts for the good of the Wellington economy. 

Slater says just because the fintech teams performed well, doesn’t mean Creative HQ should be running a Fintech programme every year. Ideally, he wants to build up industry sectors to the point where they don’t need Creative HQ any more. “If you’re a founder who has come up through one of those big companies, you’ve already learnt quite a lot and potentially you don’t join another accelerator,” he says. 

Using a gardening analogy, Slater says he wants fintech to be a “self-seeding industry”. As an ecosystem, Wellington’s fintech scene is probably already at that point. Xero was the first big tree, and from there a few other saplings sprouted. The question is, can that promising little garden turn into an entire forest? 

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